Efforts are ramping up for year-end reporting, and one topic many companies are starting to get their arms around is the new human capital resources disclosure. We’ve been posting memos about the new HCR disclosure requirement in our “Human Capital Management” and “Regulation S-K” Practice Areas, and a recent FW Cook memo can help shed some light on how companies are approaching the disclosure requirement. The memo summarizes a review of the first 50 Form 10-Ks filed by large companies after November 8th and provides some high-level observations:
Length: Word length varied dramatically, ranging from nine words to 1,582 words. The median disclosure was 369 words long.
Topics: FW Cook decided to answer the question about which topics were covered by more extensive disclosures by only giving credit for a topic if the discussion was more than a brief mention and only gave credit for a factor if the discussion was significant. The test for ‘significance’ required a level of detail that made discussions more than generic. The results of the review suggest 13 common disclosure topics – they’re listed in order of prevalence along with the percent of disclosures describing each topic:
– Extensive headcount data (60%)
– Diversity & inclusion (54%)
– Employee development/training (50%)
– Competitive pay/benefits (36%)
– Safety (36%)
– Employee benefits (32%)
– Culture/value/ethics (26%)
– Employee engagement (24%)
– Tenure/promotion/turnover (22%)
– Recruitment (22%)
– Mental health (14%)
– Pay equity (10%)
– Succession planning (8%)
In terms of how human capital resource disclosures might evolve, FW Cook predicts that the disclosures will increase in length as the filing season progresses. This is not an assertion that longer disclosures are required, but more of an observation that legally required disclosures tend to grow, not shrink. We’ve all seen how this can happen – the memo notes that when one company sees how its competitor spends 100 words extolling the importance of its culture or diversity efforts, etc., there may a strong tendency to respond in kind.
With the disclosure being principles-based, each company’s human capital resource disclosure will of course be tailored to its specific circumstances. Beyond the early “trend” information about disclosure length and topics, the report includes examples of these early disclosures that might help spur ideas as companies start preparing human capital resource disclosure.
-Lynn Jokela, TheCorporateCounsel.net December 8, 2020